Equal Principal Amortization
Calculate a loan where you pay the same amount of principal every month. This results in a total payment that decreases over time as interest is charged on a smaller balance.
What is an "Equal Principal" loan payment?
In an equal principal repayment scheme, the amount of principal paid each month stays constant. Because the balance decreases, the interest amount decreases every month, leading to a total payment that starts high and gets smaller over time.
How does it differ from standard amortization?
Standard amortization (Equal Total Payments) keeps the total monthly payment the same by increasing the principal portion as interest decreases. Equal Principal payments result in less total interest paid over the life of the loan but require higher initial payments.
When is Equal Principal better?
It is better if you want to pay the least amount of total interest and can afford the higher initial monthly payments. It is common in some commercial loans and specific mortgage markets.
Can I switch from standard to equal principal?
This depends on your loan agreement. Most residential mortgages are standard equal-payment loans. To achieve a similar effect on a standard loan, you would need to make additional principal-only payments early on.